More evidence of an unsustainable boom in house prices in the London area came this week from Halifax which revealed that prices in the capital are climbing at £474 a week, taking the average semi to £235,400 compared to just £47,900 in South Humberside.

Prices in Greater London jumped by 7.1% in the second quarter of 2001 and now stand at 17% higher than a year ago. In contrast the average UK house price rose by 4.1% over the quarter and are up 7.7% over the year.

The scale of the boom in London has surprised economists, who expected the capital to show weaker growth because of the falling stockmarket, and because first time buyers are increasingly being shut out by sky-high prices. The news may be good for existing home owners, but is fuelling a growing crisis in the capital as essential workers such as nurses and postmen flee the capital in search of more affordable areas.

Halifax says: "The gain in London in the second quarter has stretched further the gap between prices in the capital and the national average. Prices in Greater London stood at 87% above the national average in the second quarter."

It admits that the price spiral, not seen since the end of the 1980s property boom, has severely stretched '"price/earnings multiples", which measure the multiple of salary required to buy the average home. In the last gasps of the 1980s' boom, in late 1988, the average London housebuyer was paying just over six times salary to secure a foothold on the property ladder. By 1993, in the depths of the market collapse, the average home cost just under three times salary. But now the multiple has moved above five times salary again.

"The ratio of prices to earnings is above its historical average in Greater London, the South East and the South West, suggesting that significant numbers of potential first-time buyers will be finding it difficult to enter the market in these regions," says Halifax.

The stretching in multiples - and the evidence of lenders willing to give homebuyers mortgages of more than five times their salary - is bad news. Shortly after the London market last hit multiples of five and six times' salary, the property bubble burst - leaving millions in negative equity and thousands homeless after banks began repossessing homes.

In June 1989 London property prices peaked at just over £105,000, then fell until hitting a low of £75,000 in 1993.

Elsewhere, income multiples are less stretched, but still higher than they have been for nearly a decade. The average for the UK hit 4.99 times salary in 1989, fell to 3.09 in 1995, and is now at 3.6 times average salary.

Absurdly high figures for the London property market suggests the possibility of a steep decline, with one forecaster predicting a 40% collapse in prices in the capital. Halifax is more sanguine, saying it expects house price growth to be "constrained" in the south, "with this effect more pronounced in Greater London".

In the rest of the country, Halifax expects the market to stay positive with prices on a gently rising trend. It says continuing low interest rates, which are at a far lower level than they were in the 1980s, make big loans more affordable. It is also argued that credit checking and credit scoring systems have become more sophisticated with mortgage lending being more accurately directed at buyers able to afford big loans.

What you will pay

The average price of a semi detached house in counties across Britain: